Central Bank of the Dominican Republic Highlights ‘Positive’ Effects of Monetary Policy on Economic Recovery Post-Pandemic

he is Central Bank of the Dominican Republic (BCRD) presented a press document this Sunday, explaining the “positive” effects of monetary policy on the recovery of growth and the reduction of inflation in the post-pandemic.

The monetary authority indicated that they implemented a money politics limited after the supply shock caused by the coronavirus pandemic, as well as the war between Russia and Ukraine, which increased price pressures by reducing supply products. In this sense, the Central Bank indicated that monetary policy achieved a gradual convergence of inflation from 9.64% in April 2022 to 4.43% in May 2023, placing it in the target range of the monetary program.

It was from June 2023, when the issuing entity began a gradual reduction of its monetary policy rate from 8.50% to 7.0%. Likewise, he specified that the Monetary Board approved a monetary expansion program of nearly 3.0% of the gross domestic product (GDP), which aimed to stimulate economic activity.

These resources, directed to companies, especially micro, small and medium (MSMEs) and families, with financial intermediaries, for an average term of two years and with a guarantee of titles from the Ministry of Finance or the BCRD, has been assured of economic recovery in an environment of price stability, he said.

Economic recovery and monetary measures

According to the monetary institution, the liquidity expansion program approved by the Monetary Board in 2023 came to RD$ 205 billion, sent by the BCRD to financial intermediary organizations (EIF) through a combination of the release of a legal reserve and an instrument known as a rapid liquidity facility. FLR).

Of the total amount approved by the Monetary Board, the EIFs have placed approximately RD$196 billion (96% of the total) at interest rates not exceeding 9% per annum to stimulate domestic credit.

The flow of resources that the BCRD placed in the economy through financial organizations was decisive in accelerating the growth of credit to the private sector in national currency, which went from a year-on-year expansion of 13.6% in June 2023 to a growth of 21.3%. , 76% of the increase in private credit in national currency.

The Central Bank indicated that the impact of credit stimulus on the economy can be seen in the latest report on the evolution of the monthly economic activity indicator (IMAE). In fact, the IMAE showed a cumulative growth for January and February of 5.4% year on year, also seeing a gradual recovery of the Dominican economy from July 2023.

He also pointed out that there was a change in the growth trend after the first half of 2024, based on the measures of the Monetary Board. The acceleration of public investment towards the end of 2023 and the beginning of 2024 contributed to this growth, it shows.

Grow product credibility and quality

In addition to the impact of the liquidity expansion measures on credit and economic activity in the Dominican Republic, the reduced cost of financing for final debtors, as a result of these policies, has been contributing to the overall quality of the portfolio credit as a whole, as the main determinant of the growth of the banking sector, establishes a statement from the Central Bank.

In fact, from May 2023 to March 2024, the current credits of the financial system in national currency, that is, those that have updated interest and capital payments according to the terms adopted by the debtors, showed a growth of 17.7%, higher. than the 12.6% seen for the same comparable period in 2023, explains the monetary authority.

This, according to the BC, has contributed to the Dominican financial system registering a delinquency rate in its credit portfolio of only 1.2% as of March 2024 and counteracting the maturity of loans granted by resources from liquidity measures taken during the covid-19 pandemic.

Detailing the analysis by economic sector, the liquidity measures implemented by the monetary and financial authorities in 2023 focused mainly on the productive sectors of trade, construction, manufacturing, agriculture and exports, among others, for an estimated RD$166 billion.

When a nominal growth in private credit in national currency is seen before and after June 2023, changes are visible in the credit dynamics of those economic sectors, especially in manufacturing, agriculture, construction and trade, which went from low growth or negative, to become positive. and significant changes, as shown in the following graphs:

According to the issuing entity, this is consistent with the trend of sustained vitality that the Dominican economy has displayed, especially in the construction, manufacturing, agriculture and trade sectors, which have been achieved together with sustained strength the financial system.

Likewise, the release of legal reserves for the provision of loans for low-cost housing for an authorized amount of RD$ 21,424 million, has affected the living conditions of families that are not normally served by the financial system.

In fact, as of March 2024, the EIFs had managed RD$ 18,238 million of the authorized amount, of which RD$ 13,855 million was placed in loans to acquire approximately 6,293 new low-cost homes, with a term of up to five years and no interest rate higher than 9%.

The rest of RD $ 4,383 million was given to interim loans, with a term of two years and interest rates of up to 9%, for the financing of 53 construction projects of this type of low-cost housing. It is expected that at the end of this phase approximately 13,000 new affordable homes will be funded.